European carmakers oppose EU-Japan trade deal

MILAN – European carmakers object to a looming trade deal between the EU and Japan, saying the accord would make it easier for Japanese automakers to sell cars in Europe without providing the same opportunity to European exporters.

An unbalanced free trade agreement with Japan has the potential to worsen the problem of plant overcapacity in Europe at a time when vehicle manufacturers in the region are starting to see a recovery after six years of falling sales.

That could mean job losses, automakers say.

“With the tenuous state of the European economy, we should all be troubled with an agreement that as written would ease the way for Japan to leverage its excess manufacturing capacity to significantly increase exports to Europe without providing the same opportunity for European exports,” Ford of Europe said in a statement. “Such a scenario could mean significant job losses in the worst possible time.”

A 2011 trade deal between the EU and South Korea cut import duties for Hyundai, its sister brand, Kia, and Chevrolet exports from the country by 10 percent, giving the manufacturers a boost during a brutal price war that has pushed PSA/Peugeot-Citroen near the brink of collapse.

The numbers tell the story: In 2010, 294,013 cars were imported to the EU from South Korea, rising to 402,062 in 2012, while imports from all other countries fell that year and total imports dropped 11 percent. About 2 million of the 13.7 million cars sold in 2012 in the EU were imports. South Korea is now the EU’s largest car importer, according to figures from European automakers association ACEA.

“If we’re now talking about opening up import duties for Japan, put a helmet on,” Fiat Chrysler CEO Sergio Marchionne said at the Geneva auto show in March.

The EU’s free trade policy is often at odds with actions taken by member states at a national level to protect jobs.

Cutting tariffs for makers of cars in South Korea has contributed to market share loss for some of Europe’s volume automakers. Two years after the EU opened its car market to more competition, the French government put pressure on money-losing PSA not to shut its Aulnay plant outside Paris amid crippling losses. PSA closed the plant last year.

To be fair, Europe was already suffering from too much manufacturing capacity long before the financial crisis began in 2008, so it would be incorrect to point a finger solely at trade agreements as the culprit. The EU has failed to come up with a policy that balances the benefits of free trade with the negative effect of the deals on some local manufacturers. Such deals place automakers in Europe at a disadvantage, some vehicle manufactures say, compared with U.S. counterparts that are now thriving in the wake of a well-executed “auto bailout” by U.S. President Barack Obama.

EU countries are expected to decide on May 23 whether to move forward with the EU-Japan trade talks, since Japan has made progress in recognizing EU conditions.

The EU is still demanding that Tokyo end preferential tax treatment for domestically produced small-engine cars, Reuters reported May 5. Carmakers will no doubt be watching that issue closely.

ACEA has two requests:

1) That Japan adopts international safety and environmental standards used by the EU, instead of sticking to its own, cutting the cost and time for approvals;

2) That Japan ends the preferential tax treatment for domestically produced small engine cars.

This preferential tax treatment means that Europe's smaller cars are excluded from 40 percent of Japan's passenger car market, ACEA said in a statement.

“The elimination of non-tariff barriers will be essential to achieve the ultimate objective that a vehicle manufactured and type approved in the EU will be accepted in Japan without further testing or modification,” ACEA said.

Deep divisions between European automakers have affected ACEA’s position as a lobbying group in the past. With both Toyota and Hyundai among its members, ACEA represents all the automakers building cars in Europe.